The impact of Brexit on cross-border disputes – key considerations for Manufacturers and Suppliers
In these circumstances, the impact of Brexit on the legal implications of cross-border trade is a major issue for importers and exporters.
However, changes to the regimes governing these cross-border disputes could cause problems down the line if UK companies regularly trade with EU businesses and have not Brexit-proofed their contracts.
Pre-Brexit, manufacturers and suppliers benefitted from regulations that allowed for service of proceedings, jurisdiction and enforcement regulations to be reciprocated in civil litigation with parties based in the EU.
Unfortunately, this is no longer the case. Whist some EU regulations have been written into UK law post-Brexit, UK businesses generally have to fall back on the regimes that were previously only used in litigation with non-EU businesses. This will inevitably involve elements of uncertainty and additional red tape, compared to when the UK was a member of the EU.
If you are a manufacturer or supplier who deals with EU entities, you should urgently review your contracts to ensure that your dispute resolution provisions are appropriate and mitigate the risk of becoming tangled in a drawn out and expensive cross-border dispute.
To assist with this review, we have set out some key considerations and potential pitfalls to avoid.
Key considerations
1. Governing Law
The regulations that determine governing law continue to apply post-Brexit. This means that governing law clauses in favour of the laws of England and Wales remain a sensible choice, as EU countries will continue to uphold clauses which expressly choose English law to govern the contract.
2. Service of Proceedings
The EU Service Regulation no longer applies. Parties will instead need to rely on the Hague Service Convention (where applicable) or other treaties or conventions on service when serving proceedings on overseas parties. This is likely to add further delay to an already complicated process.
However, parties can avoid this issue if they agree a service on a UK agent clause in their contract. This allows parties to serve proceedings on a nominated agent in the UK and bypass the requirements to serve proceedings overseas.
For many international companies this is a standard provision and it is well worth including in key new contracts or renegotiating with your EU suppliers. With more UK businesses now establishing subsidiary companies in the EU and EU businesses establishing subsidiaries in UK to mitigate the effects of Brexit, this may be an option for you.
3. Jurisdiction
The previous regime ensured that a jurisdiction clause in favour of the courts of one EU member state would be respected by the courts of all other member states. This regime no longer applies, so you should give your jurisdiction clauses greater consideration, as it is no longer the case that "one size fits all".
For example, the type of jurisdiction clause (i.e. i.e. exclusive, non-exclusive, unilateral or asymmetric) may determine if it will be recognised and upheld by EU states, or if EU states will apply their own law. Although most EU states are likely to respect jurisdiction under their national law, this might not be the case everywhere and additional steps may be required.
You should take into consideration:
a) the location of the parties and each of their assets;
b) how the choice of governing law fits with your litigation strategy; and
c) that you could end up being a claimant or a defendant.
Some suppliers find it easier to expressly provide for any claim against their customer to be pursued in the customer's jurisdiction, which can make the service of proceedings and enforcement easier in a debt collection action. Conversely, if the customer wishes to sue you for faulty goods or late delivery for example, you may want to require them to sue you in England.
It is not unusual to see contracts translated into the language of the customer if English is not their first language. Where a translation is required, it is best practice to have one contract with both languages included. This is done by splitting each page of the contract into two columns with one side in English and the translation on the other side. This allows the contractual provisions to be read side by side in each language and helps avoid misunderstandings.
4. Arbitration
Brexit has not affected the rules on arbitration or the enforceability of arbitration awards. Parties could therefore agree an arbitration clause in their contracts to avoid the issues surrounding cross-border litigation post-Brexit. However, arbitration may not be appropriate for all kinds of dispute and careful consideration should be given as to whether it will benefit you and fit within your dispute resolution strategy.
Arbitration clauses are often advisable in contracts with businesses based in certain jurisdictions such as Russia, China and the USA. This is because UK court judgments are less likely to be enforced by courts in Russia and China . Despite our 'special relationship' with the US, it is actually easier to enforce an arbitral award in the US than it is to enforce a judgment from a UK Court. This is because UK businesses wanting to enforce a UK judgment in the US must issue proceedings in the US based on the UK judgment, whereas an arbitral award will generally be more easily recognised and enforced by a US court.
An alternative to a pure arbitration clause may be a hybrid clause where arbitration will apply to some types or values of dispute and litigation will apply for others.
We can assist you with any queries regarding the impact of Brexit on your business, including an audit of your dispute resolution clauses to ensure these are fit for purpose post-Brexit.
Fieldfisher also has a multi-disciplinary Brexit taskforce that can help with any aspect of your business transition.
